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Pensions Auto-Enrolment Q&A

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Pensions Auto-Enrolment Q&A

You may have already heard about Auto-Enrolment Pensions.  You may have started receiving letters from the Pensions Regulator. With this change in running a PAYE system hitting small business in the next year to eighteen months we give a Question and Answer on Auto-Enrolment.

Does it affect me?
If you employ PAYE staff then Auto-Enrolment applies to you.  However if you are a sole Director on PAYE or one of a group of Directors less than two of whom are on a contract then it may not.  In this situation you need to send an email to the regulator the details of which can be found here: Instructions on what do if you are sole Director etc.

When will I need to deal with it?

 The deadline by which you need to have the mechanisms in place is called your ‘Staging Date’ and Auto-Enrolment has been staged according to the number of employees you have. Employers with more than 50 employees have already started on Auto-Enrolment.  Any employers with less than 50 employees will have staging dates between June  2015 and Jan 2017.  To find out your staging date you need to enter your PAYE number into this Pensions Regulator Tool.

What if I miss the deadline?

The Pensions Regulator is trying to strike a balance between working with employers to help them comply with their duties and forcing employers through penalties.  Here is what they say on enforcement.  Ultimately fines start at a flat £400 with penalties escalating at £50/day for small employers thereafter!

What do I need to do to get started?

The following sets out the basics of what needs to be done:

  • Find out your Staging Date
  • Appoint a Point of Contact
  • Check which staff members to enrol
  • Work out your Costs
  • Choose and set up a Pension Scheme
  • Choose and set up an IT solution
  • Write to Staff about Auto-Enrolment
  • Assess Staff and inform your Pension Provider
  • Complete a Declaration to the Pensions Regulator

More information on this can be found in Pensions Regulator guidance.

Do all staff members need to be registered on the scheme?

No.  For anyone earning less than £112/week or £486/month you must provide a pension scheme if they ask for one but you don’t have to make contributions as an employer.  Anyone earning between £486 and £833 per month (£112 – £192 per week) has a right to opt in – ie must be paid contributions if they request.  Above that salary, they must be added to the scheme.

What will my Costs be?

Auto-Enrolment is about your employees paying into a pension through their payroll.    The amount you the employer will be obliged to pay starts at 1% of salary for anyone registered on Auto-Enrolment before 30/9/17, rising to 2% from 1/10/17 – 30/9/18 and 3% thereafter.  Employee contribitions start at 1% and rise to 3% and 5% respectively.  Employees registered on a scheme can opt of the scheme but you cannot oblige them to or even encourage them to.

Apart from the Pensions Contributions themselves the cost of administering the scheme and IT will need to be factored in.

How do I choose a Pension Provider?

There are hundreds of different Pension providers on offer and the skill of your pension fund manager will affect the savings your staff end up with at retirement.  The Pension Provider your choose must fit certain criteria to comply with the Auto-Enrolment scheme so it is important to check that they do (this linked tool is provided).

We recommend to contact an IFA to help you with this decision.  Some companies may struggle to find a pension provider willing to register a scheme for them especially in the next 2 years when there will be a rush to sign up with a pension scheme, however the government’s NEST has been set up as a back stop with a duty to accept any PAYE scheme wishing to set up a pension scheme.

What IT do I need?

At time of writing there is some debate as to what IT will be provided by HMRC or Pensions Regulator to help streamline the reporting and admin around Auto-Enrolment.  However our best guess is that whilst tools will be provided, neither HMRC nor Pensions Regulator will provide an integrated solution.

Therefore many businesses will want to find a software provider that will also handle Auto-Enrolment.  If you already have PAYE software we recommend to check that it will be ‘Auto-Enrolment’ compliant.

Xero users will be pleased to know the new PAYE integration handles Auto-Enrolment.

What and when do I need to inform staff?

Within 6 weeks of your staging date you must write to each member of staff who is either being automatically enrolled to let them know what deductions will be being made, contributions passed to their pension and their rights vis-a-vis otping out.  You must also wirte to any staff member who is not being automatically enrolled letting them know about their rights to opt in.

Letter templates can be downloaded from this linked Pensions Regulator page.

Once they have been written to and responses collected you are in a position to inform the Pension Scheme provider who will be joining a pension.

What happens then?

Once the scheme is set up, contributions need to be made and records kept of contributions, any opt-outs.  Employers also need to keep an eye on staff members who go over the relevant earnings thresholds and become eligible for Auto-Enrolment.

The enrolment process is then repeated every three years.

Can you help?

Crunchers is offering an integrated Auto-Enrolment service for all clients who run payroll services through us on Xero.  If you would like to discuss delegating Auto-Enrolment duties to Crunchers send an email to Damion Viney for more information.

Christmas Cracker

In the spirit of Christmas here is an accountant joke worthy of a belly groan around the Christmas Day lunch table.

How may accountants does it take to change a light bulb?

0.83 + VAT.

Positioning Seminar

We held our first seminar last night at the Bespoke Space, East Dulwich.

The intention of Crunchers Seminar series is to bring business thinking and support in development to the level of the sole trader businesses we serve. Though I say it myself, I think we achieved the objective.  10 business owners turned out and in feedback rated the overall value of the evening 9/10.

The basic idea being presented was that it is highly powerful to immediately spring to mind when someone is looking to buy the product or service you offer.  The trouble is that in many cases our competitors have got there first.  Positioning argues that instead of trying to knock our competitors off that list that people hold in people’s head for a particular product or service, we would do better to create our own category of product or service.  For example instead of being a general plumber, become a plumber for over 60s; or become a plumber for for schools only; or become a plumber specialising in grey water systems; or become a plumber specialising in procurement for large organisations.  In other words find a position that you can be the market leader in.

We are creating the seminars in workshop style with a lot of interaction between people attending and the speaker.  Last night people had the chance to explore possible positions for their business run them past other business owners.

There was some nice feedback:

“Extremely valuable”
“Very personal and informative.  Walking out of here with ideas and clearer understanding of my business.”
“This topic has allowed me to explore different ideas and think of possible directions for future development.”
We are continuing the series on 28th Nov with ‘Working on your business vs Working in your business’.

The excellent Breadroom have promised pastries to add to the evening.  Registration is available through the Something for Nothing page of the website.

I hope to see many of you there.

Apprenticeships 2

Last week I posted that I was off to South London Apprenticeships Fair on a fact finding mission to see what is involved in taking on an apprentice.

My impression before going was that it was a fairly pain free process to take on an apprentice.  I am pleased to say that it is even easier than I thought.  Not that employing anyone is easy, just that the hurdles to taking on an apprentice are relatively straight forward.

Firstly let me provide a little overview of how the scheme works.  The basic idea is that your apprentice spends some time in college but most of the time training on the job (minimum of 16hrs per week).  The time in college is provided by a training provider and an employer provides the training on the job.  Typically an apprentice spends 4 days a week on the job and a day at college.  16-18 year olds are fully funded for their study by the state, 19 – 24 year olds are partially funded and 25+ year olds struggle to get funding.  The employer must pay a minimum apprenticeship wage of £2.50 / hr for apprentices over 18 years old (nothing for 16- 18 year olds).  They are encouraged to pay more an attract older or more skilled  aprpentices by offering more salary.  A figure of £170/wk is quoted in one piece of literature I picked up as an upper end salary.

So that covers the bare bones of the scheme.  Now let me  deal with what you need in place before you take on an apprentice.  At first appearance the requirements seemed to be a health and safety policy, employers liability insurance and a registration with HMRC for payroll (PAYE).  However when you dig a little further it turns out that really all you need is the employers liability insurance.  The reason for this is that an industry has sprung up amongst training providers to provide apprenticeships and they are doing everything they can ease the way for potential employers.

From chatting to a few people it appears that employers willing to take on an apprentice are in high demand.  They struggle most to place 16-18 year olds but employers willing to take on older apprentices are are also much sought.  As a result it seems to me that the agencies involved are making a big effort to take away as much of the pain from employers.

For example I found one agency London Apprenticeship Company who have structured the arrangement thus:  they employ the apprentice (saving you the trouble of setting up PAYE or dealing with that admin), they arrange the training and help you to recruit a candidate as you would normally, they pay the apprentice and bill you.  In other words you are not their employer, you are saved all of that admistration.  An added advantage is that if they turn out to be the wrong person you don’t even need to worry that you are sacking them and all the regulation that goes with that.  Why? Because the London Apprenticeship Company is their employer and continues to pay them.  Another agency I spoke to about Health and Safety will also support you to get you Health and Safety Policy in place.  I would recommend that anyone considering this does not simply make the Health and Safety aspect a box ticking exercise, but it seemed to me that this particular company were more or less offering something off the shelf to fulfill this requirement.

I also asked around about what happens if your apprentice turns out to be no good.  Universally the agencies who were there seemed to be saying that you are free to let someone go and that they would quickly find a suitable replacement.  Naturally they were keen to say that they made their best effort to avoid this by filtering the candidates they offered up.  I asked one agency what the success rate of candidates from the employers point of view and the answer that came back was that around10% of placements did not work out.  I didn’t think that was too worrying.

Of course employing people is not just about hiring, firing and cost.  It is also about managing people and in the case of apprenticeships, training them.  If you are considering taking on an apprentice I would make sure you plan for the time you will need to spend with them.  Certainly at the beginning you will have extra work to do until they can take work off you.

Like most people I talk to I am in favour of the scheme from a community point of view.  Young people have a tough hand to play coming to the jobs market at this time.  Setting that aside though, I can see big benefits for small businesses.  As I said in my last blog, it appears to provide a good half way house for those who would struggle to take on a full employee.

Apprenticeships 1

As I meet clients, the possibility of taking on an apprenticeship seems to pop up on a fairly regular basis.

To go from no business to some business must be one of the most daunting challenges in business (ie start up) but following that I would say that going from a business that supports you the owner to one that supports you and someone else must be fairly high up the list in terms of difficulty.  For a sole trader busy delivering their service to a high standard and managing the other aspects of the business, there is a considerable leap to make in order to grow the business to support a second worker.  Not only is there the problem of maintaining enough work to support two people suddenly a whole host of issues are arrive on the business owner’s lap that they have never had to deal with before.  Employment law, health and safety, managing people and tax spring to mind. On the other hand, it can be incredibly frustrating and stiffling to ignore the possibility of growth and stay at that level of having just one person involved in the business.

With this in mind the attractions of the apprenticeship scheme is obvious.  It solves two problems neatly.  Firstly the amount you pay is clearly considerably less than a fully skilled worker.  It allows you to move more gradually to a position where the business supports two people.  Secondly there is a huge attraction in training someone up to run the business in a way that meets your standards and has your values.  The alternative can be getting someone on board who thinks they know the business but resists your perspective and your ways of doing things.  Once on board, sacking people can difficult and emotionally draining, whilst the apprenticeship has a limited period and can be more easily written off as a failed experiment.

Having taken on an apprentice in  previous company I ran, I know that the right person can be an enormous resource.  There are procedures and policies that need to be in place before you can take one into the business and the problems of management do not disappear.  Making the shift from sole operator to manager is a psychological and logistical leap to make.  I would argue that from a business point of view it is a leap that brings huge rewards but I understand it is not for everyone.

I will therefore be attending the upcoming South London Apprenticeships Fair on Tuesday 25th Oct in Camberwell.  I need to remind myself of the specifics of what a business needs to put in place to bring on an apprentice.  I will blog again next week with my findings.



Feast or Famine – how to break out of the cycle (pt3)

Following on from taking control, the other main aspect is dealing with the fear that there is not enough work out there.

4.  Ditch the mindset of scarcity.  In famine, it can feel like there is never going to be another job or another sale.  If you have done your planning, you should have reasonable confidence that the actions you are taking will produce a sale or a job at the right price.  Learn to say no to the ones that do not have the right price.  In our example above, our hero / heroine (see blog pt1) could have saved a lot of heartache and stayed in control of their marketing if he /she had said no to that first job and maybe even the second.  This is not about having a positive attitude or having an ego trip that you are worth more.  You can say no because you have done your planning. You are confident that your plan will produce work at the right price.

If that feels too much of a leap, you can at least start with negotiating your work.  For example the situation above would look completely different if our hero / heroine had put some conditions on taking the first job on at a reduced price.  What if she /he had said “I usually charge double for this work.  I am willing to look at it if we can come to an agreement about the deadline.  I cannot agree a firm deadline because if a job paying properly comes up, I will need to fulfill that first and this job may get pushed back.  I will compromise on price if you will compromise on this aspect of the work.”

Also know when you have enough work and resist the temptation to accept more.  If you accept more, other aspects of the business will suffer.  What is more when you say no in this kind of situation you begin to establish the idea in the mind of your clients that your service or product has more value than your competitors.  In the mind of the potential client, they are thinking “This person is turning down work.  They must be in demand.  They must be good. Damn, I wish they were available.”  Then they will be prepared to pay more when you are available.

5.  Use pricing to control the flow.  Large companies do this all the time, so why not you?  For example if you book your plane ticket with five months in advance you pay £30 but if you book one week in advance it is £130.  Offer your services at different rates according to the timescale.  Make clients pay over standard rate if they want the job delivered this month but tell them that if they are prepared to wait for three months to do the work you will reduce to below standard rate.  Even if they can’t make it work for this job they will remember for the future.  Imagine the difference it would make to have half the work you need for March already booked by December.  Get a retainer upfront and earn interest on it.  Charge regular work at a different rate to one-off work.

6.  Find ways to charge more.  Really this is a combination of items 2 and 3 above.  The more you charge, the more resources of time and money you can devote to your marketing.  I know it feels like we are in a recession and the market place is competitive.  All the same, the more creative ways you can find to charge more the bigger impact you will make to this cycle because you will need to do less delivery work or sell less product to maintain your income and this will leave you with more time and money to do your marketing.  This is a whole topic to itself and worthy of another blog at another time.  All the same, here are some ideas to start thinking: offering added extras; becoming an expert in something; having a really strong brand; charging for changes to your contract or the job specification.

7.  Explore employing people or outsourcing your work.  Are there aspects of your work you can get someone else to do in times of feast?  Be careful to factor in time to manage these people if you do go down this route. Nevertheless bringing someone on who can take care of some aspects of your business is worth exploring.  It has the added attraction of allowing your business to grow.  If you are serious about your business growing significantly you will need to address this at some point anyway, otherwise your business will always be limited by your time.  Be careful to know when this turns into employment from a legal perspective with Inland Revenue.

If anyone out there has experience of putting any of the above advice into action, it would be great to get your feedback.